Week 8: The Entry – The “Toll Booth” (Spreads)

Selling naked puts (Week 6) requires a lot of cash. If you don’t have $14,000 to buy Apple, you can use the Vertical Credit Spread.

We call this “The Toll Booth.” You set up a barrier, and the market pays you to pass by.

1. The Mechanics of a Put Credit Spread

Instead of just selling one option, you make two trades instantly:

1. Sell the expensive Put (e.g., Strike $140). You collect money.
2. Buy a cheaper Put (e.g., Strike $135) as protection. You pay a little money.

Net Result: You collect a “Credit” (Profit). Your Risk: It is strictly limited to the width of the strikes ($5 wide). You can never lose more than that, even if the stock goes to zero.

2. Order Types

Never use a “Market Order.” Market orders are for panic.

• Limit Order: “I will sell this spread for $0.50 or better.”
• You set the price. If the market doesn’t give it to you, you don’t trade.
• Walk your order down slowly. Don’t chase price.

3. Entry Protocol

1. Right click the chart -> “Sell Vertical”.
2. Check the “Mid Price.”
3. Set your Limit Order slightly above the Mid Price.
4. Wait for the fill.